An audit by the Department of Energy’s Inspector General found that the persistent weak demand for electric vehicles harmed the deployment and timeliness of a $135 million-plus taxpayer funded charging network, which spun a cycle of excessive grants and project expansion, that led to an enormous waste of public money.

The investigators, led by IG Gregory Friedman, determined that conditions for reimbursement to Ecotality, Inc. (and its subsidiaries) for the EV charging demonstration project were “very generous,” although not explicitly prohibited under federal regulations.

“While we acknowledge that the Department had maintained and archived award documentation, an independent reviewer cannot understand the rationale behind important decisions made by Department officials, as required by government internal control standards,” Friedman’s report said. “Additionally, the Department’s weaknesses in oversight of administrative aspects of Ecotality’s awards may have led to funding items that were not directly attributable to the grant.”

The IG noted that Ecotality – in part under previous names and/or subsidiaries it would eventually acquire – received about $35 million from DOE’s Vehicle Technologies Program from 2005 to 2011, “for two multi-year projects to evaluate and test specific vehicles.” Then it was granted the big enchilada under the 2009 Recovery Act, in which DOE granted $100 million for Ecotality’s EV Project. The company’s Web site mentions another $15 million grant that it was awarded in June 2010. According to the IG, Ecotality was to contribute a minimum of 20 percent of cost sharing under the $35 million in grants; under the $100 million award, it was to share costs 50-50 with private resources. The EV Project claims that the $115 million from the stimulus brought the value of the project to $230 million.

“Although there is no clear legislative history on the meaning behind requiring recipients to provide cost-share, the concept is generally understood to mitigate risk, help leverage Federal investments, and ensure that recipients have some ‘skin in the game’ in these kinds of transactions,” the IG report said.

Except those mechanisms used were extremely lenient. DOE approved reimbursement to Ecotality that allowed the company to use as a “match” the full monthly costs of the electric cars, chargers and Internet service for EV owners who participated in the program – over $550 per month, according to the IG. Because of that generous accounting, Ecotality received taxpayer funds to offset costs it incurred.

“…the vehicles and Internet connections were purchased to satisfy personal needs of consumers, not solely for the project,” the IG reported.

The report reasoned that the purpose of the EV Project was to “develop, implement, and study techniques for optimizing the effectiveness of infrastructure supporting widespread electric vehicle deployment,” an agenda established by President Obama as part of his plan to have 1 million electric cars on the road by 2015. The IG explained that Ecotality planned a “mature infrastructure” rollout in five major metro areas to “ensure accessibility” and alleviate the bugaboo that dogs widespread electric car adoption: range anxiety. The goal was for government to stimulate the installation of so many chargers, both at commercial and residential locations, that places to repower cars would be (at least almost) as available as gas stations. The additional $15 million (the IG says it was $14 million) was to allow for the addition of two more metro areas.

It didn’t work. Weaker than expected demand for electric cars meant there was a diminished need for chargers, so fewer were deployed in the identified markets. As a result, DOE authorized the addition of five more markets, which agency bureaucrats and Ecotality hoped would enable them to fulfill the target of nearly 15,000 active charging stations. The problem was, with the addition of markets, the strategic concentration of chargers to alleviate “range anxiety” in the demonstration markets was lost.

“Specifically, under the modified approach Ecotality was no longer required to install Fast Chargers in a grid such that each of these units was accessible within a 10-mile range,” the IG reported.

The practicality of such a plan was likely to fail under any amount of electric vehicle adoption. But the wider deployment of chargers, combined with less-than-enthusiastic public acceptance of EVs, meant that many plug-in units were used even less. For example, the IG reported that – as of October 2012 – poor performers represented about 78 percent of units in Memphis, 74 percent of units in Washington, DC, and around 60 percent of units in Phoenix, Tucson, Knoxville, and Dallas. That’s a lot of taxpayer-funded equipment that provided almost useless data, which was supposed to show how a fully deployed electric vehicle system works.

The expansion of markets for testing led to other unintended consequences. The additional locations increased the costs for travel and administration, which therefore reduced the total number of chargers deployed to 13,200. The greater-than-anticipated reimbursement to vehicle owners – presumably to convince them to join the program – also added to the costs. Incentives for residential users later in the project were reduced from $1,200 to $400 for home charger installations as a result.

“Department officials also stated that Ecotality had significantly exceeded the residential participation goals in the project and participation had not been adversely affected by the incentive reduction,” the IG said.

Another unplanned result was that fewer chargers were deployed to commercial locations, which would likely be where the data collection would be truly desired and helpful for study. After all, everybody’s who owns an electric car is going to charge it overnight at home – not much worthwhile to learn about that. It’s more in the public spaces and business parking lots where recharging behaviors would want to be understood. That’s not possible when nobody’s using them.

Which goes to the heart of Ecotality, and DOE’s, management of the project, which fell under criticism. The IG – in soft-pedal language – among other things criticized the lack of documentation about alternatives considered to expansion of the project to extra markets.

“The lack of analysis by the Department or Ecotality prevented us from determining whether the reasoning behind these changes was sound and in the best interest of U.S. taxpayers,” the IG wrote.

Friedman’s team also criticized delays in completion of the EV Project, which was affected by weak demand for electric cars. Originally the deployment of the chargers was to be completed by December 2011 and data collection finished in April 2013. Now DOE has given Ecotality until September 2013 with the project ending this December. As a result, less time would be allowed for data gathering and analysis, which the IG said could affect the findings of the overall project, in addition to the inefficiency of the use of taxpayer resources from the delays.

“In particular, by not finalizing the awards in a timely manner, the Department was at increased risk of incurring costs that were unreasonable in relation to the scope of work and utilizing outside sources of funding that were unallowable,” the IG reported.

Finally, the auditors said they found “no issues with the selection of Ecotality for the project.” But if they had done any background research on the company, they might have.

As NLPC reported in October 2011, Ecotality was granted its stimulus millions despite a minimal track record in the business and leadership that was weak on experience but strong on cronyism and campaign contributions. The details are in that earlier article, but in sum Ecotality began in April 1999 under another name with the intent to become a wholesaler of environmentally friendly cleaning products. After years of attempting to make that business work, in 2005 it was in the red.

But in February 2006 a new owner, Harold Sciotto, informed the SEC of a planned stock split. The change brought in Jonathan Read of Scottsdale, Ariz. as part of the ownership group and as company president. Read was previously Chairman and CEO of the Park Plaza Hotel chain, which he sold in 2003 to Carlson International and another investment group. During the first quarter of 2006 the company’s mission was converted from biodegradable products to development of “electric power cell technology,” and apparently Read’s solid profile and connections enabled the company to draw another $750,000 in private investment, some of which was used to purchase the intellectual property of the fuel cell technology and commit to devote $1.35 million more to further develop the technology in conjunction with NASA’s Jet Propulsion Laboratory in Pasadena, Calif.

I’m a political beast,” Read said in a July 2007 shareholder conference call. “Playing the political card is something that when the time is right we’re going to play very hard.

Under the new arrangement, the company would also commit to paying Read and Sciotto $120,000 each annually, which was automatically renewable every year. But despite the transformation and investment, Ecotality would continue to lose money – far more than it did as a cleaning products company. So its beginnings were under a sales manager and hotel executive, who threw some money at some tech groups and Arizona politicians and ultimately gained favor from the Department of Energy. A Washington Free Beacon report out today spells out even more the political connections and advantages enjoyed by Ecotality.

But if Ecotality had a stellar background with extensive experience developing batteries or chargers, the project was almost certainly doomed to failure anyway. Even if the prediction of 1 million cars by 2015 was fulfilled, there would have been hundreds – if not thousands – of chargers in public places going unused, because EV owners would primarily be charging at home. It just takes too long to repower electric cars, even on so-called “fast chargers.”

The Obama administration’s brazen foray with other peoples’ money into electric cars and its sideshow businesses couldn’t overcome the unforgiving laws of economics. A basic understanding of that principle could have prevented the launch of the foolish EV Project in the first place.